Financing your first car is quite possibly a bigger milestone than you would expect. Not only do you get to practice working on your financial discipline, but you can also make measurable progress towards achieving a goal. And once you’ve made sufficient progress you get to buy yourself a shiny new car.
Financing a car is one of those things that is easier said than done. Luckily we have a few tips on how you can approach the situation with confidence, and that will to help you get your car quicker.
As with most things in life, the key is preparation. Consider your monthly income and figure out how much you can comfortably afford to spend each month on your car. To help you come to a decision, consider these rules of thumb:
- People typically spend between 10 and 25% of their paycheck on their monthly payments for their car. By calculating an exact amount you’ll be able to see the type of car you can afford to buy.
- When you’ve figured out your budget, get online and find some vehicles that have monthly payments within that budget. You may not necessarily be able to afford the car of your dreams, but you’ll probably be able to get something that gets you from A to B pretty comfortably.
The ultimate goal of financing your first car is getting used to owning a car that you’ve worked towards buying. Once you’ve got that down there’s nothing wrong with working your way up to eventually financing the car of your dreams. Take one step at a time though.
Your Credit Score Matters
In order to obtain finance for anything (even a mobile phone) you’re going to need to have a solid credit score. This score will tell lenders how well you manage your money. It also tells the dealership whether or not you’re likely to be trustworthy enough to fulfil your arrange finance or payment plane. A good credit score is worth having because it saves you money over time. Better credit scores open doors to more favourable financing opportunities.
Whether it’s your phone bill or your mortgage, it’s absolutely vital that you pay your bills on time. This will improve your credit score, put you in a better standing and help you to get finance on most things. Having some credit looks better on your credit report than no credit at all.
If you don’t already have one, then you should consider getting yourself a credit card. You don’t have to get into debt with it – you can use it solely for building up your credit rating. Having a credit card proves that you’re able to manage your money wisely. The quicker you can get into disciplined financial habits, the faster you’ll be able to finance your first car.
Signing on the Dotted Line
In some cases, the person taking out finance for a car will need a guarantor to sign and help close the deal. Dealerships tend to offer much larger incentives to first-time financers who sign on the dotted line today, but don’t let that influence your decision until both you and your guarantor agree that it’s the best option for you. A family member or friend can be a guarantor for you, and they will usually be the main person listed on the loan. You will be able to start building credit, but bear in mind that if you miss a payment then it will affect both of your credit scores.
Buying your Car
When you finally have everything in place it’s time to go to the dealership and pick out your first vehicle. This is where it’s important to take the time to do a thorough check of any potential vehicle that fits your budget.
It goes without saying that within a couple of minutes of being in the dealership you will have a pushy salesman approach you and try to get your signature on something. It pays to let them know that you’d like some space to make your own decision at this point. This will prevent you from feeling rushed and making a decision that you haven’t fully thought about.
It’s also recommended to ‘sleep on it’ once you’ve found a vehicle that you like. When you’ve found a car, go home and give it a day or so to think about it. The car you like won’t be going anywhere, especially if it is a new model. Take this opportunity to do a bit of research online and find out the market value of the model, as well as any potential extras that you might be able to get thrown in to sweeten the deal. If the dealership price seems fair, then go back there to complete the sale.
A Pro Tip
When it comes to being positive that you want a particular car, tell the dealer that you’re willing to sign the paperwork today for a cheaper price. If the dealer cannot honour this, then don’t be afraid to walk away because there are plenty of other dealers out there who will. These things may take a bit of extra time, but if you’ve put in all of the research and hard work up until now, then a little longer won’t hurt. And it will save you plenty of money in the long run.